The U.S. economy continues to recover with the help of a vaccine deployment, putting upward pressure on interest rates and warranting interests in assets like the iShares Interest Rate Hedged Long-Term Corporate Bond ETF (IGBH).

The fund seeks to mitigate the interest rate risk of a portfolio composed of U.S. dollar-denominated investment-grade corporate bonds with remaining maturities greater than ten years. With a focus on a debt duration of more than 10 years, hedging rate risk is a must.

IGBH seeks to provide exposure to long-term investment grade corporate bonds while mitigating interest rate risk by holding IGLB (iShares 10+ Year Investment Grade Corporate Bond ETF) and short positions in interest rate swaps.

Features of IGBH:

  1. Exposure to long-term corporate U.S. investment grade corporate bonds with potentially less interest rate risk
  2. Actively management that seeks to mitigate interest rate risk
  3. Use to manage interest rate risk or express a view on credit spreads

IGBH Chart

Treasury Secretary Says Rates Must Rise

Treasury Secretary Janet Yellen recently said that rates must rise in order to keep the economy from overheating. The U.S. economy continues to get a boost from government stimulus dollars.

“It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat,” Yellen said during an economic forum presented by The Atlantic. “Even though the additional spending is relatively small relative to the size of the economy, it could cause some very modest increases in interest rates.”

“But these are investments our economy needs to be competitive and to be productive. I think our economy will grow faster because of them,” she added.

Yellen assured that she had respect for the independence of the Fed with regard to interest rate policy and was not trying to influence decision-making.

“It’s not something I’m predicting or recommending,” Yellen said to the Wall Street Journal’s CEO Council Summit a week ago. “If anybody appreciates the independence of the Fed, I think that person is me, and I note that the Fed can be counted on to do whatever is necessary to achieve their dual mandate objectives.”

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